3 Different Types of Life Insurance Policies – Life Insurance Explained Simply







Let’s look at the different types of life insurance policies that exist. This may sound dry, but understanding the differences, and getting an idea of what your options are, can greatly enrich your financial future.

Lets look at life insurance explained simply, and in a way that makes sense, and see how each type of life insurance applies to you.

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Hi this is Dan Thompson

In this video, we are going to look at the three most common types of life insurance policies.

Because everyone has a different situation one policy may be more favorable over another.

As your situation and finance changes evolving into other types of policies could make financial sense.

In subsequent videos, we will dissect the purpose, use, and advantage of using a permanent high cash value type policy, so stay tuned.

Alright, here we go.

To start off, let’s look at the most common type of life insurance. Term

Why is term the most common?

1 It’s the least expensive pure life insurance.
2 It’s used to protect your family, pay debts, and future planned expensive.
3 It’s made to be use for a “Term” not a lifelong policy.
4 You can buy term for specific periods of time such as 5, 10, or 20 year.

The downside to term is this:
1. Gets more expensive as you age – Prohibitive for estate planning as the older you get the premiums can be far too expensive.
2. Most people drop their term coverage about retirement time as cost are pricing them out of their policy.
3. Has no “premium return” or cash value.
4. Once you quit paying premium – all past premiums are lost.
5. Must die to get a benefit.

You never own term insurance. It’s more like renting. Quit paying rent and you have nothing to show for it.

So, when you do you use term?

When you are young and you have a young family, term can be an inexpensive way to assure your family will be provided for in case of an untimely death.

Only about 1-2% of all term polices ever pay a death benefit, which is why it’s relatively inexpensive. The chances of a young 20-30-40-year-old dying are in the companies favor.

By the time you hit your 60’s and 70’s term is extremely expensive and is usually dropped because of costs, or not available due to health issues.

The next type is a Universal Life.
UL first came out in the 80’s.

It was designed to build cash value and help offset the cost of insurance as you aged.

Essentially the premium is made up of two parts.

You have the insurance part or death benefit. And then there is a savings part or a cash value part.

The death benefit in a UL is covered by term insurance.

It’s not the cheap term insurance you hear advertised on the radio, it’s actually quite expensive.

The difference is you can buy term in increments like 10 or 20 years. In a UL the term is what is called Annual Renewable Term.

It’s actually less costly while you are young, but is incredibly expensive as you age.

The idea with a UL is that you overpaid the premium and the excess went into a cash value account.

Those funds received an interest credit based on the current interest rates at the time.

The hope was the cash value would grow and as the cost of the term insurance increased the cash value could help offset those costs.

If there was enough cash value, at some point the earning on the cash value would or could pay the premiums.

The downside was the cost of insurance had no cap to it. In other words, the insurance company could raise the term costs and for many the cash value was eaten up quickly.

By the time people retired, the cost of the insurance escalated and the cash value could not keep up with the costs.

When that occurs, you are faced with either paying the premium out of pocket or the policy would lapse.

Many older couples could not afford the higher premiums and the policies lapsed.

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I have been involved in financial planning for over 32 years. I started out as a high volume stock broker. After working with millions of dollars I decided there had to be another way for people to earn money in the market without all the risky ups and downs that leave you where you started, or worse. After reading a ton of books I came across a book on the Infinite Banking Concept and it completely changed my life and the way I view investments. Now I focus on building wealth in safe and predictable ways, like Infinite Banking, Cash Value Life Insurance, and Indexed Annuities to name a few.

I post videos regularly so if you have any questions of comments feel free to email them to…

dan at wisemoneytools dot com


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